Agric. Econ. - Czech, 2018, 64(6):277-290 | DOI: 10.17221/233/2016-AGRICECON

Barriers to exit encountered by small farms in light of the theory of new institutional economicsOriginal Paper

Lukasz SATOLA*,1, Tomasz WOJEWODZIC2, Wojciech SROKA2
1 Institute of Enterprises Economics and Management, University of Agriculture in Krakow, Krakow, Poland
2 Institute of Economic and Social Sciences, University of Agriculture in Krakow, Krakow, Poland

For at least 25 years, processes involving structural changes have been growing more and more intense in the countries of Central and Eastern Europe, with these processes including a decline in the number of small farms. The main aim of this paper is to present the mechanisms involved in, as well as barriers to and costs preventing the exit of farms from agriculture, including those that make it difficult to transfer production resources which are being released to other companies. This research takes the form of an overview and is based on the output of new institutional economics, and on transaction cost and rent-seeking theories in particular. The most frequent difficulties encountered in the process of exit from farming include low profitability of production and the shortage of capital among potential buyers, while the lack of sellers' financial resources and the necessity of incurring expenses related to preparing and finalising the sale of resources held by them (the actual transaction costs related to closing down farms) are frequently overlooked. The most important barriers preventing the complete liquidation of farms are the inherent transaction costs categorised as expenses, as well as the emotional costs and costs of alternatives, which are difficult to evaluate and estimate. The following notions are particularly helpful in explaining barriers to exit from farming: the concept of transaction costs and rent-seeking theory, which are both a part of the stream of thought of new institutional economics.

Keywords: new institutional economics, rent-seeking theory, transaction costs, transformation of farms

Published: June 30, 2018  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
SATOLA L, WOJEWODZIC T, SROKA W. Barriers to exit encountered by small farms in light of the theory of new institutional economics. Agric. Econ. - Czech. 2018;64(6):277-290. doi: 10.17221/233/2016-AGRICECON.
Share...
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Abelairas-Etxebarria P., Astorkiza I. (2012): Farmland prices and land-use changes in periurban protected natural areas. Land Use Policy, 29: 674-683. Go to original source...
    2. Akerlof G.A. (1970): The market for "lemons": quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84: 488-500. Go to original source...
    3. Allen R.C. (1999): Tracking the agricultural revolution in England. The Economic History Review, 2: 209-235. Go to original source...
    4. Arrow K.J. (1969): Essays in the Theory of Risk-Bearing. Markham, Chicago.
    5. Arrow K.J. (1994): Methodological individualism and social knowledge. The American Economic Review, 84: 1-9.
    6. Bidwell P.W. (1921): The agricultural revolution in New England. The American Historical Review, 26: 683-702. Go to original source...
    7. Bielik P., Horska E., Turcekova N. (2005): Some aspects of land market in Central and Eastern European countries: focus on Slovakia. Agricultural Economics - Czech, 51: 335-341. Go to original source...
    8. Bhatta B. (2010): Causes and consequences of urban growth and sprawl. In: Analysis of Urban Growth and Sprawl from Remote Sensing Data. Springer, Berlin Heidelberg: 17-36. Go to original source...
    9. Boehlje M. (1973): The entry-growth-exit processes in agriculture. Southern Journal of Agricultural Economics, 5: 23-36. Go to original source...
    10. Breustedt G., Glauben T. (2007): Driving forces behind exiting from farming in Western Europe. Journal of Agricultural Economics, 58: 115-127. Go to original source...
    11. Calus M., Van Huylenbroeck G. (2008): The succession effect within management decisions of family farms. In: 12 th Congress of the European Association of Agricultural Economists - EAAE 2008.
    12. Cenar I. (2011): The pension system for farmers in Romania facts and perspectives. Romanian Economic Business Review, 6: 27-35.
    13. Ciaian P. (2007): Land reform and productivity gains with multiple market imperfections. EERI Research Paper Series No. 1/2007, Economics and Econometrics Research Institute (EERI), Brussels.
    14. Ciaian P., Swinnen J. (2006): Land market imperfections and agricultural policy impacts in the new EU member states: a partial equilibrium analysis. American Journal of Agricultural Economics, 88: 799-815. Go to original source...
    15. Ciaian P., Pokrivcak J., Drabik D. (2009): Transaction costs, product specialisation and farm structure in Central and Eastern Europe. Post-Communist Economies, 21: 191-201. Go to original source...
    16. Ciaian P., Kancs D. (2012): The capitalization of area payments into farmland rents: micro evidence from the new EU member states. Canadian Journal of Agricultural Economics, 60: 517-540. Go to original source...
    17. Ciaian P., Paloma S.G. (2011): Valuation of EU agricultural landscape. EERI Research Paper Series No. 20/2011, Economics and Econometrics Research Institute (EERI), Brussels.
    18. Congleton R.D., Hillman A.L., Konrad K.A. (2008): Forty years of research on rent seeking: an overview. In: The Theory of Rent Seeking: Forty Years of Research 1. Springer-Verlag: 1-42, Heidelberg. Go to original source...
    19. Coppola A. (2004): An economic perspective on land abandonment processes. Working paper No. 1/2004 presented at the AVEC Workshop on "Effects of Land Abandonment and Global Change on Plant and Animal Communities". Anacapri, Oct 11-13, 2004.
    20. Czyżewski B., Grzelak A. (2011): The Practical and Theoretical Determinants of Transaction Costs - the Case of Food Industry in Poland in 1992-2009. SGH, Warsaw: 185-206.
    21. Czyżewski B., Brelik A. (2014): Political rents in the European Union's agriculture. Management, 18: 191-203. Go to original source...
    22. Dacko M., Dacko A. (2014): Improving the area structure of Polish agriculture - a systemic approach. Problems of Small Agricultural Holdings, 2: 23-37.
    23. Davidova S.M., Bailey A., Dwyer J., Erjavec E., Gorton M., Thomson K. (2013): Semi-subsistence farming: value and directions of development. Directorate-General for Internal Policies Policy Department B: Structural and Cohesion Policies, European Parliament, Brussels.
    24. Davidova S., Thomson K.J. (2014): Family farming in the enlarged EU: Concepts, challenges and prospects. In: 142nd Seminar EAAE Seminar Growing Success? Agriculture and rural development in an enlarged EU, Corvinus University of Budapest, Budapest, May 29-30, 2014.
    25. Edson S. (2005): The Industrial Revolution. Castellon.
    26. Eggertsson B. (1990): Economic Behavior and Institutions: Principles of Neoinstitutional Economics. Cambridge Surveys of Economic Literature, Cambridge University Press. Go to original source...
    27. Eurostat (2016): Available at http://ec.europa.eu/eurostat/data/database (accessed Nov 3, 2016).
    28. Fields G. (1999): Urbanization and the transition from agrarian to industrial society. Berkeley Planning Journal, 13: 102-128. Go to original source...
    29. Foss K., Foss N.J. (2005): Resources and transaction costs: how property rights economics furthers the resource -based view. Strategic Management Journal, 26: 541-553. Go to original source...
    30. Fredriksson L., Bailey A., Davidova S., Gorton M., Traikova D. (2017): The commercialisation of subsistence farms: Evidence from the new member states of the EU. Land Use Policy, 60: 37-47. Go to original source...
    31. Furtan W.H., Jensen M.S., Sauer J. (2008): Rent seeking and the Common Agricultural Policy: Do member countries free ride on lobbying? In: 107th EAAE Seminar Modeling of Agricultural and Rural Development Policies, Sevilla, Jan 29-Feb 1, 2008.
    32. Furtom H., Sauer J., Jensen M.S. (2009): Free-riding on rent seeking - an empirical analysis. Public Choice, 140: 479-500. Go to original source...
    33. Gale H.F. (2003): Age-specific patterns of exit and entry in U.S. farming; 1978-1997. Review of Agricultural Economics, 25: 168-186. Go to original source...
    34. Gale H.F. (1990): Economic analysis of farmer participation in the dairy termination program in North Carolina and Virginia. Southern Journal of Agricultural Economics, 22: 123-131.
    35. Georgiev M. (2010): "Rent seeking" in agricultural contracts in the country. Trakia Journal of Sciences, 8: 230-233.
    36. Goetz S.J., Debertin D.L. (2001): Why farmers quit: a country-level analysis. American Journal of Agricultural Economics, 83: 1010-1023. Go to original source...
    37. Glauben T., Tietje H., Weiss C.R. (2002): Farm succession plans and actual behaviour: evidence from a household survey and census data. In: 2002 Annual meeting, July 28-31, Long Beach, No. 19691, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    38. Gorynia M. (1999): The firm - the new institutional approach. Ekonomista, 6: 777-790.
    39. Grubbström A. (2011): Emotional bonds as obstacles to land sale - attitudes to land among local and absentee landowners in Northwest Estonia. Landscape Urban Planning, 99: 31-39. Go to original source...
    40. Grykień S. (2005): Transformacja rolnictwa w krajach Europy Środkowo-Wschodniej. Przegląd Geograficzny, 77: 213-233.
    41. Halamska M. (2013): Live in rural areas: lifestyle factors. Village and Agriculture, 159: 28-42. Go to original source...
    42. Hardt L. (2009): The history of transaction cost economics and its recent developments. Erasmus Journal for Economics and Philosophy, 2: 29-51. Go to original source...
    43. Hartvigsen M. (2013): Land reform in Central and Eastern Europe after 1989 and its outcome in form of farm structures and land fragmentation. Land Tenure Working Paper No. 24, FAO.
    44. Hartvigsen M. (2014): Land reform and land fragmentation in Central and Eastern Europe. Land Use Policy, 36: 330-341. Go to original source...
    45. Higgins V. (2001): Governing the boundaries of viability: economic expertise and the production of the 'lowincome farm problem' in Australia. Sociologia Ruralis, 41: 358-375. Go to original source...
    46. Hodgson G.M. (2007): Meanings of methodological individualism. Journal of Economic Methodology, 14: 211-226. Go to original source...
    47. Holtslag-Broekhof S.M., Beunen R., van Marwijk R., Wiskerke J.S.C. (2014): "Let's try to get the best out of it" understanding land transactions during land use change. Land Use Policy, 41: 561-570. Go to original source...
    48. Hubbard C. (2013): Case study Romania. In: Davidova S., Bailey A., Dwyer J., Erjavec E., Gorton M., Thomson K. (eds): Semi-subsistence Farming - Value and Directions of Development. European Parliament DirectorateGeneral For Internal Policies IP/B/AGRI/IC/2012-65, Publications Office, Brussels, Belgium.
    49. Hubbard M. (1997): The 'New Institutional Economics' in agricultural development: insights and challenges. Journal of Agricultural Economics, 48: 239-249. Go to original source...
    50. Kanianska R., Kizeková M., Nováček J., Zeman M. (2014): Land-use and land-cover changes in rural areas during different political systems: A case study of Slovakia from 1782 to 2006. Land Use Policy, 36: 554-566. Go to original source...
    51. Kilian S., Salhofer K. (2008): Single payments of the CAP. Where do the rents go? Agricultural Economics Review, 9: 96-106.
    52. Kimhi A., Bollman R. (1999): Family farm dynamics in Canada and Israel: the case of farm exits. Agricultural Economics, 21: 69-79. Go to original source...
    53. Koell A.M. (1998): The agrarian question in Eastern Europe - some answers from the Baltic region. Uneven Development in Europe, 39: 201-229. Go to original source...
    54. Kopsidis M., Wolf N. (2012): Agricultural productivity across Prussia during the industrial revolution: a Thünen perspective. The Journal of Economic History, 72: 634-670. Go to original source...
    55. Koteva N., Basheva K., Risina M., Mladenova M. (2009). Assessment of impact of EU CAP on farms. Agricultural Economics and Management, 3: 16-25.
    56. Kuehne G. (2013): My decision to sell the family farm. Agriculture and Human Values, 30: 203-213. Go to original source...
    57. Levie J., Lichtenstein B.B. (2010): A terminal assessment of stages theory: introducing a dynamic state approach to entrepreneurship. Entrepreneurship Theory and Practice, 34: 317-350. Go to original source...
    58. Lobley M., Baker J.R., Whitehead I. (2010): Farm succession and retirement: some international comparisons. Journal of Agriculture, Food Systems and Community Development, 1: 49-64. Go to original source...
    59. Maart S.C., Musshoff O., Odening M., Schade C. (2011): Closing down the farm: an experimental analysis of disinvestment timing. In: EAAE 2011 Congress Change and Uncertainty. Challenges for Agriculture, Food and Natural Resources, Zurich, Aug 30-Sept 2, 2011.
    60. Mishra A.K., El-Osta H.S., Johnson J.D. (2004): Succession in family farm business: empirical evidence from the US farm sector. In: AAEA Meeting in Denver, Aug 1-4, 2004.
    61. Molnár A., Vandenbroucke P. (2010): Structural and land use change of farms in the periurban area of Budapest - case study of Veresegyház subregion. Studies in Agricultural Economics, 112: 83-96.
    62. Musiał W. (2009): Rozważania nad upadłością gospodarstw rodzinnych w Polsce. Wieś i Rolnictwo, 142: 44-61. Go to original source...
    63. Musiał W. (2012): Determinants of agricultural land management in the crushed agrarian regions. In: Rosner A. (ed.): The Development of Agriculture and Rural Areas in Poland. Spatial and Regional Aspects. IRWiR PAN, Warsaw: 179-206.
    64. Musiał W., Wojewodzic T. (2014): Agrarian transformation barriers in Polish agriculture - seeking innovative solutions. In: Czyżewski A., Klepacki B. (eds): Problems of Development of Agriculture and Food Economy in the First Decade of Polish Membership in the European Union, PTE, Warsaw.
    65. Needham B., Segeren A., Buitelaar E. (2011): Institutions in theories of land markets: illustrated by the Dutch market for agricultural land. Urban Studies, 48: 161-176. Go to original source...
    66. North D., Wallis J.J. (1986): Measuring the transaction sector in the American economy 1870-1970. In: Engerman S.L., Gallman R.E. (eds): Long Term Factors in American Economic Growth. University of Chicago Press, Chicago.
    67. North D.C. (1990): Institutions, Institutional Change and Economic Performance. Cambridge University Press. Go to original source...
    68. North D.C. (2008): Institutions and the performance of economies over time. In: Handbook of New Institutional Economics, Springer Berlin Heidelberg: 21-30. Go to original source...
    69. Pasour Jr., E.C. (1987): Rent seeking: Some conceptual problems and implications. The Review of Austrian Economics, 1: 123-143. Go to original source...
    70. Peel D., Berry H.L., Schirmer J. (2016): Farm exit intention and wellbeing: A study of Australian farmers. Journal of Rural Studies, 47: 41-51. Go to original source...
    71. Peerlings J.H., Ooms D.L. (2008): Farm growth and exit: consequences of EU dairy policy reform for Dutch dairy farming. In: 12th EAAE Congress People, Food and Environments: Global Trends and European Strategies, Gent, Aug 26-29, 2008.
    72. Pension Insurance in the Republic of Bulgaria (2011): Problems and Necessary Reforms, Sofia, Feb, 2011.
    73. Petrick M. (2008): Theoretical and Methodological Topics in the Institutional Economics of European Agriculture. With applications to farm organisation and rural credit arrangements. Studies on the Agricultural and Food Sector in Central and Eastern Europe, No. 45. Available at http://nbn-resolving.de/urn:nbn:de:gbv:3:2-10779
    74. Podstawka M. (2010): Myths and truths about the Agricultural Social Insurance Fund. Insurance in agriculture. Materials and Studies, 37: 7-15.
    75. Potori N., Chmieliński P., Fieldsend A.F. (2014): Structural changes in Polish and Hungarian agriculture since EU accession: Lessons learned and implications for the design of future agricultural policies. Research Institute of Agricultural Economics, Budapest.
    76. Prosterman R.L., Rolfes L. (1999): Agricultural Land Markets in Lithuania, Poland, and Romania: Implications for Accession to the European Union. Rural Development Institute, Seattle.
    77. Radzimski A. (2012): Real estate taxation in Poland and its influence on spatial development. In: Schrenk M., Popovich V.V., Zeile P., Elisei P. (eds): REAL CORP 2012: Remixing the City - Towards Sustainability and Resilience, Schwechat, May 14-16, 2012.
    78. Raggi M., Sardonini L., Viaggi D. (2013): The effects of the Common Agricultural Policy on exit strategies and land re-allocation. Land Use Policy, 31: 114-125. Go to original source...
    79. Rørstad P.K., Vatn A., Kvakkestad V. (2007): Why do transaction costs of agricultural policies vary? Agricultural Economics, 36: 1-11. Go to original source...
    80. Samsura D.A.A., van der Krabben E., van Deemen A.M.A. (2010): A game theory approach to the analysis of land and property development processes. Land Use Policy, 27: 564-578. Go to original source...
    81. Schnicke H., Happe K., Sahrbacher C., Kellermann K. (2008): Exploring the role of succession patterns in Central and Eastern European's dualistic farm structures. In: Proceedings of the 107 th EAAE Seminar Modelling of Agricultural and Rural Development Policies, Sevilla, Jan 29-Feb 1, 2008.
    82. Sikorska A. (2013): Obrót ziemia a przemiany agrarne w indywidualnym rolnictwie. Zagadnienia ekonomiki rolnej, 334: 8-21.
    83. Silasi G. (2013): The liberalization of the land market in Romania. Economical, social juridical and political implications. Journal "Annals - Economy Series", 16: 21-29.
    84. Simon H.A. (1959): Theories of decision-making in economics and behavioral science. The American Economic Review, 49: 253-283.
    85. Smithers J., Johnson P. (2004): The dynamics of family farming in North Huron County, Ontario. Part I. Development trajectories. Canadian Geographer/Le Géographe canadien, 48: 191-208. Go to original source...
    86. Social security systems and demographic developments in agriculture in the CEE candidate countries (2003). IAMO, July 2003.
    87. Stam J.M., Dixon B.L. (2004): Farmer Bankruptcies and Farm Exits in the United States, 1899-2002. US Department of Agriculture, Economic Research Service, Washington, DC.
    88. Stankiewicz W. (2012): Institutional Economics of Outline of Lecture. PWSBAiTK, Warsaw.
    89. Suess-Reyes J., Fuetsch E. (2016): The future of family farming: A literature review on innovative, sustainable and succession-oriented strategies. Journal of Rural Studies, 47: 117-140. Go to original source...
    90. Swain N. (2013): Agriculture 'east of the Elbe' and the common agricultural policy. Sociologia Ruralis, 53: 369-389. Go to original source...
    91. Swain N. (2016): Eastern European rurality in a neoliberal, European Union World. Sociologia Ruralis, 56: 574-596. Go to original source...
    92. Swinnen J., Ciaian P., Kancs A. (2008): Study on the Functioning of Land Markets in the EU Member States under the Influence of Measures applied under the Common Agricultural Policy. Unpublished Report to the European Commission, Centre for European Policy Studies, Brussels.
    93. Téglási A. (2013): The protection of arable land in the basic law of Hungary with respect to the expiring moratorium of land acquisition in 2014. Acta Universitatis Brunensis Juridica, 442: 2442-2465.
    94. Theesfeld I. (2003): Constraints for collective action in a transitional economy: the case of Bulgaria's irrigation sector. World Development, 32: 251-271. Go to original source...
    95. Tocco B., Bailey A., Davidova S. (2013): Determinants to leave agriculture and change occupational sector: Evidence from an enlarged EU. In: International Agricultural Trade Research Consortium's (IATRC's) 2013 Symposium: Productivity and its Impacts on Global Trade, June 2-4, 2013, Seville.
    96. Van Dijk T. (2004): Land consolidation as Central Europe's panacea reassessed. In: Modern Land Consolidation: Symposium in Volvic (Clermont-Ferrand), Sep 10-11, 2004.
    97. Van Dijk T. (2007): Complications for traditional land consolidation in Central Europe. Geoforum, 38: 505-511. Go to original source...
    98. Van Dijk T., Beunen R. (2009): Laws, people and land use: A sociological perspective on the relation between laws and land use. European Planning Studies, 17: 1797-1815. Go to original source...
    99. Van Herck K., Swinnen J., Vranken L. (2013): Direct payments and land rents: evidence from new member states. Factor Markets Working Document No. 62, Centre for European Policy Studies. Available at https://ssrn.com/abstract=2329931 Go to original source...
    100. Van Holst F., Eberlin R., Onega Lopez F. (2014): LANDNET and land market issues in Europe. ZfV-Zeitschrift für Geodäesie, Geoinformation und Landmanagement, 3: 183-189.
    101. Van der Krabben E., Buitelaar E. (2011): Industrial land and property markets: market processes, market institutions and market outcomes: the Dutch case. European Planning Studies, 19: 2127-2146. Go to original source...
    102. Vidican G. (2009): Assessing land reallocation decisions during transition in Romania. Land Use Policy, 26: 1080-1089. Go to original source...
    103. Viira A.H., Poeder A., Vaernik R. (2009): The factors affecting the motivation to exit farming - evidence from Estonia. Food Economics - Acta Agriculturae Scandinavica, C, 6: 156-172. Go to original source...
    104. Weller S.A., Smith E., Pritchard W. (2013): Family or Enterprise? What shapes the business structures of Australian farming? Australian Geographer, 44: 123-136. Go to original source...
    105. Wilkin J. (2005): Public choice theory - homo economicus in politics. In: Wilkin J. (ed.): Public Choice Theory. Introduction to the Economic Analysis of Policies and the Functioning of the Public Sphere, SCHOLAR, Warsaw.
    106. Williamson O.E. (1979): Transaction-cost economics: the governance of contractual relations. Journal of Law and Economics, 2: 233-261. Go to original source...
    107. Wojewodzic T. (2013): Divestments and economic fall of farms - attempt at terminological differentiation. Acta Scientiarum Polonorum, Oeconomia, 12: 101-110.
    108. Wojewodzic T., Musiał W. (2014): Wykorzystanie dywestycji w procesie likwidacji gospodarstwa rolniczego. In: Dec P. (ed.): Niepewność funkcjonowania przedsiębiorstw. Bankructwa, restrukturyzacja, likwidacja. SGH, Warsaw: 215-226.
    109. Yang D.T., Zhu X. (2013): Modernization of agriculture and long-term growth. Journal of Monetary Economics, 60: 367-382. Go to original source...
    110. Zagata L., Lostak M. (2013): Farming transitions: pathways towards regional sustainability of agriculture in Europe, Final Report, FP7 KBBE 2010-4.

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International (CC BY NC 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content